The smooth acceleration shown by Tesla in the past two years faltered in the second quarter. Chief Executive Elon Musk has offered hints that the problems run deeper than lockdowns in Shanghai.
On Saturday, Tesla reported quarterly deliveries of 254,695, down from 310,048 in the first three months of the year. The news came as no great surprise given the pandemic-related shutdowns that affected its Shanghai factory in April and May. The final tally was slightly below consensus expectations of 264,000, according to FactSet.
A bad quarter for sales will be a worse one for earnings, which Tesla reports on July 20. Given China's lower labor costs and established battery supply chain, it is widely assumed that the company's Shanghai operation is more profitable than its other established factory in Fremont. On top of that, the company is ramping up its new factories in Germany and Texas, which Mr. Musk described as "money furnaces."
So it was an ugly quarter all round operationally, but does that matter? Tesla said June was its best month for vehicle production to date, implying that it is accelerating hard out of the problems in April and May. The production ramp-up process in its new plants was always going to be expensive. Analysts have been cutting their forecasts for 2022 deliveries, but the consensus of almost 1.39 million vehicles would still amount to an increase of almost 50% over last year's number.
Tesla isn't the only car maker experiencing problems. General Motors on Friday warned that its second-quarter profit would be lower than expected due to a large batch of unfinished vehicles that it is holding in inventory for want of specific parts.
The other news emanating from Tesla and its boss lately is arguably more concerning than the step down in deliveries. Tesla is cutting white-collar jobs, with Mr. Musk having warned last month that the car maker became "overstaffed in many areas." This past week it closed one of its Silicon Valley offices.
These aren't the kind of actions companies undertake due to temporary challenges. Is Tesla overstaffed because the global economy is cooling -- Mr. Musk has been vocal on the risk of a recession -- or because supply-chain problems have slowed its longer-term plan? Are the cuts related to the CEO's concerns about staff laxity, as revealed in company emails about working from home, or to those money furnaces, which might be burning hotter than hoped? These are questions to dig into during the coming earnings call.
Then there is the issue of Twitter distraction. It still isn't clear whether Mr. Musk will follow through with his $44 billion deal to buy the social-media platform. He continues with due diligence, notably around the issue of fake accounts, but investors are skeptical it will close: Twitter shares trade 29% below the offer price. Any signs that the transaction will go ahead after all could hit Tesla's shares and sharpen questions around succession.
Mr. Musk was very upbeat in Tesla's last earnings call in April, despite the Shanghai lockdowns in force at the time. Investors need a better understanding of why the mood has soured.